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Detailed Findings
2015 Business Climate Survey Summary of Results
Results of the online survey conducted in November and December 2014 by Independent Marketing & Research Limited on behalf of AmCham Taipei. Of the 422 voting representatives (mainly CEOs) from AmCham member companies who were invited to take part, 245 did so for a 58% response rate. The sample covered a wide spectrum of companies by size of employment – from the very small to the very large. The primary business focus of more than 70% of the respondents is to supply goods or services to the Taiwan domestic market.
American Chamber of Commerce in Taipei Suite 706, Worldwide House 129 MinSheng East Road, Section 3, Taipei 10596, Taiwan Tel: +886-2-2718-8226 Fax: +886-2-2718-8182 www.amcham.com.tw C O N S U LTA N T
2015 Business Climate Survey
At the Five-Year Mark, Time for Serious Reflection Message from 2015 AmCham Chairman Thomas Fann
During the past several months, AmCham Taipei conducted its fifth annual Business Climate Survey, inviting the 422 voting representatives from our member companies (generally the CEOs) to answer a series of questions about the business environment in an online questionnaire. I would like to express the Chamber’s appreciation to Gordon Stewart of Independent Marketing & Research for his professional guidance in conducting the survey and analyzing the data. Thanks are also due to the 245 member executives who took the time to complete the survey. The high 58% response rate, which reflects members’ recognition of the importance of this exercise, has produced a solid quantity of data. It is now possible to track AmCham leaders’ view of the business environment over a five-year time span. Overall, the results of the five surveys have been quite consistent. On the one hand, AmCham companies regard Taiwan as a good place to do business, characterized by an industrious and well-educated work force (although some respondents are reporting a shortage of suitable new personnel). Nearly all companies are profitable and are continuing to increase investment and expand employment. The executives are especially positive about the quality of life in Taiwan, describing this society as a safe and friendly environment in which to live and work. But on the other hand, the 2015 survey reflects widespread frustration over certain chronic problems that have remained over the past five years without any substantial improvement – and in some cases have been worsening. Among the continuing chief points of dissatisfaction cited are inconsistent regulatory interpretations, excessive bureaucracy, outdated laws and regulations, inconsistent application of the rule of law, differences between local and internationally accepted standards, insufficient notice before regulatory changes are introduced, and lack of transparency. With regard to inconsistent regulatory interpretations, for example, 21% of the respondents say it has an “extreme impact” on their business while another 39% say it has a “significant impact.” AmCham company leaders hope that the government – both the executive and legislative branches – will pay increased attention to these shortcomings in the interest of enhancing Taiwan’s international competitiveness, with favorable consequences for employment and overall prosperity. Other countries, notably Taiwan’s chief trade rival South Korea, are benefiting from participation in numerous free trade agreements. Since that path has been difficult for Taiwan to follow for political reasons, this country must find other ways to bolster its attractiveness to foreign partners for trade and investment. Regulatory reform should be at the top of the list. During the past year, the Chamber has been encouraged by indications that the government has been reviewing the regulatory process with an eye to bringing Taiwan’s procedures in line with standard international practices. The direction is positive, but so far few major revisions have actually been put in place. The pace will need to be accelerated to enhance Taiwan’s chances for eventual inclusion in the Trans-Pacific Partnership. But whether or not TPP membership materializes, liberalization would improve Taiwan’s ability to compete effectively in global markets. We hope that we may look forward to the vigorous adoption of economic reform initiatives in the coming year, including implementation of the Free Economic Pilot Zone plan, to further strengthen Taiwan’s future economic outlook.
Thomas Fann 2015 AmCham Taipei Chairman
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2015 Taiwan Business Climate Survey
Executive 2014 Business Summary Climate Survey
Major Takeaways >General Conditions • Of the AmCham executives taking the survey, 69% percent reported that the past year was very or relatively profitable. • Compared with last year’s survey, the number of respondents forecasting growth in revenue and profits in the coming year was about the same (63% vs. 61%), as was the number forecasting increased levels of investment (48% vs. 50%). • 60% of the executives expressed optimism about the five-year business outlook. • More than half of the surveyed companies (56%) increased their employment in 2014, and 49% anticipate further increases in hiring in 2015. • The Taiwan work force continues to be viewed very favorably for being industrious and well-educated, though lagging in creativity, initiative, and international-mindedness. • Taiwan rates very favorably as a safe and comfortable place to live. Food safety is viewed as a problem, however, and the English-language environment needs improvement.
>Areas of Concern • Over the past five annual surveys, the factors cited by respondents as having a major negative impact on their business operations have been largely the same: inconsistent regulatory interpretations, adverse changes in local demand, governmental bureaucracy, inadequate/out-dated laws and regulations, and inconsistent application of the rule of law. • Domestic political unrest was also viewed as a growing problem, as were protectionism and government procurement procedures. • The single category cited as showing marked progress is direct flights to/from mainland China. • Government action (necessarily from both the executive and legislative branches) is requested to deal with the areas of deficiency.
>Trade Pacts • The respondents expressed support for Taiwan’s entry into the Trans-Pacific Partnership (TPP) and for a Bilateral Investment Agreement between Taiwan and the United States. • ECFA is generally perceived as having a positive effect on Taiwan as a whole and on AmCham members’ own businesses. • On the question of whether the Cross-Strait Services Trade Agreement would be beneficial to Taiwan, 60% of respondents said yes, 24% no, and the rest had no opinion
2015 Taiwan Business Climate Survey
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2015 Business Climate Survey
2014: A decent year for business A substantial 70% of the companies surveyed – the highest percentage since 2011 – said their operations last year were either very or relatively profitable. The 14% describing the performance as “very profitable” was also the highest since the same level was reached in 2011. Most of the remaining respondents reported finishing 2014 at break-even or with a small profit or loss, with only 2% reporting a “relatively large loss” and none experiencing a “very large loss.”
2015 Forecast: More of the same 11% of respondents, the same proportion as last year, said they expect to achieve “substantial growth” in both revenue and profits in the coming year. Those anticipating “modest growth” in both revenue and profits came to 50%, slightly less than the 53% of the past two years. A total of 9% said revenues and profits were likely to see a “modest decline” in 2015.
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Detailed 2014 Business Findings Climate Survey
Near-term Investment: Further momentum 92% of the executives said their companies were likely to invest at least as much in the next 12 months as they did the previous year. 10% (compared to 7% last year) said they expected to make a “substantial increase” in investment, while 40% (41% last year) said there would be a “slight increase.”
Looking ahead five years After a three-year slide, those describing themselves as optimistic or slightly optimistic about business prospects over the next five years amounted to 60% of respondents. From a high of 81% in 2011, that figure had fallen to 65% in 2012, 56% in 2013, and 54% in 2014 before rising in the 2015 survey.
2015 Taiwan Business Climate Survey
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2015 Business Climate Survey
What impacts their business? “Inconsistent regulatory interpretations” ranked as the number-one factor that respondents said had the biggest impact on their business. “Changes in local demand” was second, reflecting the fact that most AmCham member companies focus chiefly on the local market. Other adverse factors cited among the top 10 were governmental bureaucracy, inadequate/outdated laws, inconsistent application of the rule of law, difficulty recruiting appropriate new personnel, differences between local and internationally accepted standards, insufficient notice before changes to laws or regulations are introduced, lack of transparency, and domestic political unrest.
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2015 Taiwan Business Climate Survey
Detailed 2014 Business Findings Climate Survey What progress has been made in the past 3 years? Worst to Best ranking Where has progress occurred? Most of the major progress over the past three years, in the opinion of the respondents, was in the area of crossStrait relations. In fact, the only item where the number of respondents seeing significant improvement was in double digits was for direct flights between Ta i w a n a n d m a i n l a n d d e s t i n a t i o n s (19.3%). Many other categories saw little progress over the past three years, or even regressed. Among the areas seen as worsening were political unrest, domestic protectionism, personal taxation, and government procurement procedures.
Issue
Ranking 2012-14 2011-13 2010-12 2009-11 2008-10
Political turmoil in Taiwan Domestic protectionism Personal taxation levels Government procurement procedures Changes in energy costs Governmental bureaucracy Consistency in the application of the rule of law Access to private equity financing Corporate taxation levels Changes in employment expenses Revision of inadequate/outdated laws Changes in raw material costs Changes in financing costs Ability to raise capital locally Changes in tariffs Sufficiency of notice before changes to regulations or laws are introduced Consistency of regulatory interpretations Illegal imports Changes in transport costs Governmental reform/restructuring Ability to recruit appropriate new personnel Corruption Changes in local demand Customs and trade regulations Transparency Ability to secure credit locally Financial industry reform Changes in overseas demand Differences between local and Internationally accepted standards EU - Taiwan government relations Economic Cooperation Framework Agreement (ECFA) Management of currency exchange rate fluctuations Intellectual Property Rights enforcement Ability of PRC personnel to work in Taiwan USA - Taiwan government relations Infrastructure (power, water, telecom, transport, etc.) China - Taiwan government relations Ability of PRC personnel to travel to Taiwan Direct flights to/from mainland China
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39
1 6 12 16 8 2 7 26 30 5 11 15 19 22 32 9 4 29 14 13 3 17 10 25 18 20 23 21 28 31 36 24 33 35 34 27 38 37 39
7 10 8
3 7 8
5 25 8
3
12
10
20 6 12 14 9
26 1 10 5 9
26 2 3 6 7
19
18
15
2 17 11 16 1 21 5 22 18
2 11 6 19 4 25 20 16 15
1 9 11 14 4 18 19 17 12
13 15
13 17
13 24
24 27 4 25
24 27 14 22
23 28 16 22
26 23 28
21 23 28
20 21 27
29
29
29
Green = significant progress (top 10th percentile) Red = significant regression (top 10th percentile)
2015 Taiwan Business Climate Survey
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2015 Business Climate Survey
The major worries confronting business Respondents were invited to tick all the items they considered applicable. Topping the list of prospective concerns, both cited by 54% of respondents, were 1) an economic slowdown affecting Taiwan’s domestic consumption and 2) a global economic slowdown. Others in the top 10 included uncertainty in Taiwan’s policy toward China (new to the survey in 2015), shortage of human resources, increased domestic political unrest, economic slowdown in mainland China, increased governmental interference, enactment of TPP without Taiwan (also new in 2015), economic slowdown in the USA, and economic slowdown in Europe.
What are the major risks facing your entity in the coming years? 54%
Economic slowdown in Taiwan’s domestic consumption
54%
69%
Uncertainty in Taiwan’s policy towards China
72% 74%
42% 35%
34% 35% 35% 36%
Lack of Human Resources Increased domestic political unrest
32%
22%
40%
32% 33%
30%
Economic slowdown in mainland China
37%
28%
30%
Increased governmental interference
28%
Enactment of TPP without Taiwan as a member
42% 41%
37% 39% 34%
20% 19%
Economic slowdown in USA
34%
41% 40%
27%
18%
Economic slowdown in Europe
25%
35% 36%
17%
18%
Taiwan Dollar (TWD) depreciation
18% 24% 18%
14%
Taiwan inflation rising
13%
20% 26% 22% 19%
18% 16% 15% 10%
Decreased exports
12%
Energy shortage in Taiwan
12%
12%
Taiwan unemployment rising
18% 16% 20%
2015 2014 2013 2012 2011
11%
11% 15% 17%
Taiwan Dollar (TWD) appreciation
2%
22%
3% 2% 2% 2%
Increased imports 0
2015 Taiwan Business Climate Survey
64%
54% 58%
Global economic slowdown
8
61% 58%
10
20
30
40
50
60
70
80 %
Detailed Findings 2014 Business Climate Survey
What needs to be done The survey asked: “What are the main things the Taiwan and U.S. governments could so in the next 12 months to help business?”
Taiwan Government 1. Reduce political turmoil 2. S i m p l i f y g o v e r n m e n t bureaucracy 3. Resolve inadequate/outdated laws
USA Government
11. R e d u c e e m p l o y m e n t expenses
1. Assist Taiwan to prepare for accession to TPP
12. Negotiate and sign a Bilateral Investment Agreement with the U.S.
2. Negotiate and sign a Bilateral Investment Agreement with Taiwan
13. Liberalize the labor market
3. Conduct more regular follow-up of TIFA items with Taiwan
14. Increase direct foreign investment incentives
4. Send more senior U.S. government officials to visit Taiwan
5. Reduce personal taxation
15. Improve R&D incentives
5. Reduce corporate taxation
6. Devise plan to stimulate local demand
16. Reduce corruption
6. Reduce personal taxation
7. Consistently apply the rule of law
17. Finalize policy regarding the China-Taiwan Services Trade Pact
7. Repeal or reevaluate the Foreign Account Tax Compliance Act (FACTA)
8. Provide sufficient notice before changes to laws or regulations are introduced
18. Negotiate and sign more bilateral trade agreements with other countries
9. Reduce domestic protectionism
19. Pass Free Economic Pilot Zone legislation
4. R e m o v e d i f f e r e n c e s between local & internationally accepted standards
8. Negotiate and finalize an extradition treaty with Taiwan 9. Resolve agricultural disputes with Taiwan
10. Broaden ECFA
Utilization of business incentives Relatively few respondents have taken advantage of incentives provided by various levels of government in Taiwan. For those who had, the most popular incentives were tax incentives for R&D, low-interest loans, government participation in investment, Free Trade Zone incentives, and indirect tax incentives for Science Parks, Export Processing Zones, bonded factories, and bonded warehouse.
Has your company participated in, or taken advantage of, any of the Taiwan government's business incentives?
12%
15%
10% 19%
Yes 73%
2014
No 71%
Don’t know
2015
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2015 Business Climate Survey
AmCham Taipei member companies are hiring
In last year’s survey, AmCham companies signaled an intention to increase employment this year. In practice they surpassed that forecast – and are expressing the desire to do even more hiring in 2015. In 2014, fully 55% of AmCham increased their employment numbers, compared with only 43% in 2013. Hiring occurred across a broad range of industries, but the top sectors were 1) Legal services, 2) Medical devices, 3) Banking, 4) Manufacturing, 5) HR consulting, 6) Food and beverages, 7) Consumer packaged goods, 8) Insurance, 9) Travel and leisure, and 10) Logisics & distribution. 49% of respondents said they planned to increase their headcount during 2015, with another 42% maintaining 2014 levels. Only 7% anticipate a reduction. Banking led the list of sectors planning increased hiring this year, followed by medical devices; legal services; HR consulting; insurance; hospitality; travel & leisure; securities, mutual funds, and asset management; chemicals; and real estate and rental & leasing.
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2015 Taiwan Business Climate Survey
Employment trends 2014 Business Climate Survey
Human Resources remain a big issue Deficiencies in the quantity and quality of available human resources are one of the higher risk factors seen as confronting Taiwan-based businesses in the future. We asked our corporate leaders about their impression of the quality of the available human capital in Taiwan. As in the past, the survey produced what overall is a highly positive picture of the Taiwan work force:
Hardworking Very trustworthy Very loyal Easy to develop/train Extremely well educated Highly productive Show a high degree of EQ Well-rounded Easy to retain Good English skills 0
50
100
150
200
But also, as with previous surveys, there were some shortcomings as well:
Easy to recruit Of 'World class' standard Show a good deal of creativity Show a great deal of initiative Innovative -50
0
Areas of shortages Respondents citing difficulties in recruiting appropriate personnel were in such sectors as Education and Training, High-tech Manufacturing, Hospitality, and Logistics and Distribution.
2015 Taiwan Business Climate Survey
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TPP/BIA
2015 Business Climate Survey
What should be Taiwan’s position regarding the Trans-Pacific Partnership (TPP)? Taiwan has expressed interest in joining the second round of the TPP, the comprehensive trade pact now being negotiated by 12 countries, including the United States. More than 2/3 of the respondents believe Taiwan is capable of meeting the high standards required for membership, and a resounding 83% would encourage Taiwan to pursue that goal to avoid economic marginalization.
Is Taiwan capable of meeting the high standards required for TPP membership?
Should Taiwan pursue membership of the TPP?
Don’t know 14%
Don’t know 20%
Yes! 68%
No! 12%
2015
Should Taiwan and the U.S. negotiate a Bilateral Investment Agreement (BIA)? Nearly 2/3 of respondents see the lack of a U.S.-Taiwan BIA as a disadvantage for Taiwan; among them, 20% view it as a major disadvantage.
More than half see the absence of a BIA as a disadvantage for their own business, including 12% viewing it as a major disadvantage.
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2015 Taiwan Business Climate Survey
Yes! 83%
2015
No! 3%
Cross-Strait economic 2014 relations Business Climate Survey
Positive view of ECFA The Economic Cooperation Framew o r k A g r e e m e n t ( E C FA ) s i g n e d between Taiwan and China in 2010 is generally viewed in a favorable light. 21% of respondents saw it as having a “very positive” effect on Taiwan, up from 13% the previous two years, and 13% perceived a “very positive” impact on their own business, compared with just 4% last year and 5% in 2013.
China-Taiwan Services Agreement The Cross-Strait Services Trade Agreement under ECFA was signed in 2013 but has not yet been ratified by the Legislative Yuan. 60% of respondents said that implementing the agreement would be to Taiwan’s benefit.
24%
60%
16%
Yes No Don’t know/ Can’t say
2015 Taiwan Business Climate Survey
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M&A Activity
Consistent results According to the survey results, over the past five years around 10% of AmCham companies engaged in M&A activity each year. In 2014, some tried and failed (3%) and another 21% considered M&A activity but did not implement a project.
One in five interested in M&A for 2015 In any given year, about twice as many companies say they would definitely or possibly consider M&A in the coming 12 months, compared with those who actually pursue it.
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M&A Activity 2014 Business Climate Survey
Top Objectives of M&A But when it happens, there are sound business reasons for M&A
Major Challenges for M&A in 2014 Finding an appropriate target was the biggest challenge last year.
2015 Taiwan Business Climate Survey
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Living in Taiwan
As in previous surveys, the respondents praised Taiwan as a safe, friendly place to live for themselves and their families, and they also paid tribute to the healthcare system.
But they also noted certain conditions in need of improvement, such as food safety and the English-friendliness of the environment.
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